LSE Cities have just published a new paper of mine on innovation and growth in the Munich city-region. In terms of high-tech growth, the Munich metro is probably Germany’s Silicon Valley – it’s a fascinating story, with lessons for both the Bay Area and for British policymakers.

The report (written with Philipp Rode, Gesine Kippenberg and others) was launched last week at the Brookings-LSE Global Metro Summit in Chicago. You can find other speeches, papers and video here.

*

For over two decades, Munich has had Germany’s highest share of technology patents per population. Like the Bay Area, it’s led the rest of the country on ICT. And Munich’s story has some further, surprising parallels to the history of the Valley. Over the past 60 years, both have shifted from mainly rural communities to high-tech hubs. Both offer a strong economy and an excellent quality of life – something that’s helped keep people in the area. And both benefited from Federal defence funding – Pentagon money helped fund the early Internet, while in Munich’s case defence cash built up the advanced manufacturing sector.

In other ways, Munich is very different. The metro has a notably diverse economy – the ‘Munich Mix’ spans manufacturing, ICT, life sciences, finance and creative industries, unlike the Bay Area which is still dominated by computing.

More importantly, Munich’s economic development has been hugely influenced by the State, especially the Bavarian regional government. It’s essentially a social democratic Silicon Valley.

Government spends heavily on public schools, universities and strategic infrastructure. Munich is at the centre of a network of innovation intermediaries – public research agencies like the Fraunhofer Institutes, dedicated to technology transfer. And there are very strong networks between public and private sectors.

In the jargon, this is ‘institutional thickness’. It’s created a strongly technocratic vision of economic progress, and a clear sense of common purpose. Or as they say at Audi: Vorsprung durch Technik.

*

As a result, Munich’s leaders rode out a potentially disastrous period in the early 1990s when the area was hit by a triple whammy of re-unification, recession and global competition. Over the next two decades, state and city developed a rolling programme of policies to grow innovation capacity.

Our research suggests it paid off. Munich’s per capita economic output remains comfortably above regional and national averages. The metro has also markedly increased innovative activity in ICT, biotech and green industries – with a three-fold rise in green patents over the last 20 years.

The growing green economy sector has also benefited from pro-green federal policies, which have guaranteed a market for green energy and thus spurred a new industry of green energy products and services.

*

Of course, Silicon Valley’s market-led model has yet to face such a crisis point. But as the Valley focuses on ‘cleantech’, Munich’s state-led model is looking increasingly attractive. VC money is pouring into green economy start-ups across the Bay Area. But California still lacks the quality public education system that will connect local people into new jobs.

What can the UK learn from the Munich experience? A lot of lessons are familiar. High-tech regions grow out of what’s there. Economic diversity is helpful, adding resilience and helping stimulate new ideas. Human capital is critical, as are good schools and universities. Both time and luck matter more than we’d like.

For me, the crucial lessons from Munich are about what the public sector can do. There are three.

First, decentralisation has given Munich flexibility to develop policies that suit its needs. It’s also helped strong leaders to develop, and over time, effective working across boundaries (and political parties).

Second, both local and national governments have kept uppublic investment in the things that matter – notably human capital, public services and strategic infrastructure.

Third, incentives and market-making are really important – especially in moving towards a greener economy. British cities can do something here, but it’s really about national policy, and political leadership.

The South Bay has rapidly developed a presence in all of these, particularly in solar (which shares technologies with semiconductor manufacture). Joint Venture Silicon Valley recently put out a Greenprint for the Valley [pdf] setting out ‘climate prosperity’ – growing a new generation of innovative, world-beating firms and dealing with climate change on the side. For solar, the upper level jobs target is 20,000 positions by 2017.

And yet … this may not turn out to be the world’s eco-region. As GBN analyst Olaf Groth told me, the sheer diversity of ‘the green economy’ presents challenges – much of has limited ICT crossover. Geographies of innovation, production and sales are diverse, and don’t really favour a single hot location. There are dozens of distinct cleantech clusters in the US and around the world; production is often outsourced; consumer markets are very localised. It will be hard for Valley firms to access all of these.

So the Valley’s traditional advantages may be of limited help. And as Karen Chapple and Bill Lester argue in forthcoming research, green industry may not mean local green jobs. The South Bay already has a number of defunct semi-conductor factories, as production shifts to cheaper locations offshore.

What can we Brits learn from this? I think there’s a few key points here. First, ‘green growth’ is feasible. But UK policymakers need to get clearer on which bits can generate growth and jobs. In energy, that means wind and tidal power; and there will be significant waste, construction, transport and maintenance markets in urban areas.

The Silicon Valley story tells us there is unlikely to be a single winner in the green economy. But it also suggests that the UK can do a lot more to push forward its own distinct eco-sectors, and develop greener cities (and valleys) while we’re doing it.